For months stock market analysts and economic gurus have said that to stimulate the economy the Federal Reserve should reduce the "federal funds" rate, the rate banks pay to borrow money overnight. Now the Fed has dropped the rate by .25 percent to 1 percent, the lowest level since 1958.

The urge to "do something, anything" may feel good but it ignores a basic point: The Fed's action won't impact the economy for months, if it all -- think of the last 12 rate reductions. Worse, if nothing happens, there isn't room for the Fed to drop rates much further. It's effectively running out of ammo.

The thinking is that lower rates will spur companies to increase capital investment, hire additional workers and produce more goods and services. That's a great theory if you agree with two ideas: First, there are buyers for more goods and services, thus justifying corporate expansion. Second, that a .25 percent interest rate reduction will cause corporate planners to begin an expansion spree where none now exists.

The grim reality is that we do not have a production shortage in this country. The problem is a lack of demand -- after you have five TVs do you really need a sixth even if the price falls 50 percent?

Look at FedEx. This widely-admired company recently announced it would reduce its workforce by 14,000 jobs -- and later reported record earnings for its last fiscal year, up 17 percent from the prior period. Will FedEx now expand its workforce because of lower interest rates -- or will it look at the growing impact of the Internet on overnight deliveries?

Look at the U.S. auto industry. It's already producing more cars than it should. The marketplace is saturated. Why? To pay down massive retirement liabilities from past generations. Will automakers hire new workers now that the overnight rate has fallen? Not hardly. Cars are already sold with zero-interest financing because automakers must move metal to pay retirement costs, money that could otherwise go for building better cars or lowering sales prices. If you were an automaker would you hire more workers -- and create new retirement prospects?

We could increase production generally with the aim of selling more goods overseas. Good luck. Japan has been in a financial funk for nearly 15 years and now Germany is said to be on the edge of deflation.

The U.S. has millions of people who depend on interest payments to sustain their lifestyles. If you have retirement assets worth $1 million and a 7-percent return for dividends and interest, you're taking in $70,000 a year. Knock down the rate-of-return to .6 percent and now you're making $500 a month.

No less important, the inflation rate during the past year has been 2.1 percent according to the Department of Labor. If your investment is earning less than 2.1 percent, you're losing buying power and thus real wealth.

The stock market has seen values rise strongly since March, in large measure because of efforts in Washington to make dividends tax-exempt. The catch is that to produce dividends companies must generate cash. The cash companies produce -- when paid out in the form of dividends -- is not being employed for development or expansion. Thus dividends have the effect of limiting future growth and profitability, not good news for long-term shareholders.

Given the events of the past few years, does a rising stock market inspire widespread investor confidence? Are there any doubters out there who wonder if we are seeing a new bubble?

It is especially unhelpful to hear Freddie Mac -- a huge and tightly-regulated buyer of mortgages nationwide -- tell the world that it understated recent profits by $1.5 to $4.5 billion, events which the company admits "reflects poorly on Freddie Mac's past accounting, control and disclosure practices."

The good news is that Freddie Mac can be seen as the anti-Enron. While Enron was busily reporting profits it didn't have, Freddie Mac has been making profits it didn't report.

Is it any wonder that people are beginning to look at real estate and realize that: one, you have to live somewhere; two, given a choice it's best to live indoors; three, mortgage rates are at their lowest levels in years; four, unit sales are booming; and five, in many areas prices are rising -- nationwide, says the National Association of Realtors -- home values rose 7.7 percent in the past 12 months ending in May.

The financial events we are seeing have produced a serious toll. While the IRS reports that the richest 400 among us now earn at least $86.8 million annually, the American Bankruptcy Institute says that a record 1,611,268 people filed for bankruptcy in the most recent 12-month period.

"Today's new bankruptcy record is continued evidence that U.S. households continue to struggle with the burden resulting from consumer debts incurred in the 1990s," says Samuel J. Gerdano, ABI Executive Director.

Given the bankruptcy rate and growing joblessness, the best and surest investment today for most people is paying down credit card debt -- you have an assured "rate of return" that can exceed 18 to 20 percent.

Another good investment is to convert adjustable-rate mortgages (ARMs) to fixed-rate loans. Lock-in today's rates -- just in case inflation returns.

A third good investment? Buy more real estate. There are no guarantees, but the population is increasing and there are no signs people have given up that preference for indoor living.

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